Last Updated on Feb 28, 2020 by James W

car insurance

When you want to buy a new car, you may find that you require a car finance loan to help you to make the purchase. However, finding the most suitable form of finance is often a challenge. People often spend a great deal of time choosing the best car and haggling over the price, but they then forget to consider the financing options and end up spending more than they should as a result. Here is a quick guide to car finance in the UK to help you make the right decision when you buy your new car.

How Car Finance Works

There are many different types of car finance options available these days, all of which are slightly different. One of the most popular options is called a hire purchase (HP) agreement. These tend to be arranged by dealerships, and the money that you borrow is secured against the value of the car so that the car only becomes yours once you make the final payment.

Another popular option is a personal loan, which you may be able to get from a bank or other lender. No deposit is required for these, which can be either secured or unsecured. The APR varies from product to product, as does the amount that you can borrow.

One option is the personal contract plan, but this is only really suitable if you plan to buy a new car every few years. With this, you pay a deposit and monthly instalments, but you leave a lump sum at the end of the contract (which is guaranteed to be the value of your car after the contract ends). When the time comes, you can either pay off this lump sum and keep the car, or give the car back to the dealer without paying the lump sum.

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What to Look Out For

There are a number of things to look out for when choosing a car financing deal. The most important is the APR, because this will determine how much your loan will cost you. Sometimes deals can sound good, but when you add up how much you are actually paying back over the lifetime of the loan you can end up paying more.

Sometimes dealers will offer you a better price for the car in return for using their financing option. However, don’t be swayed by this alone. You may still be able to find an alternative financing option and save money, so it is always worth shopping around.

You should also be wary of added extras like payment protection insurance (PPI). This can cost a lot of money and is often unnecessary, so only buy it if you really want to.

How to Find the Best Deal

There are a number of ways to improve your chances of finding the best car finance loan. These include:

  • always comparing the market rather than accepting the first option you come across.
  • paying back the loan over a shorter period, because the longer the loan period, the more it is likely to cost you.
  • paying a higher deposit, which could lead to a lower interest rate, or even a 0% deal in some cases.

If you have a poor credit history, this can also affect your ability to find the best deal. To improve your chances of finding a more favourable finance option, you could:

  • use a guarantor with a good credit rating to be the cosigner.
  • shop around extensively to find the best deal.
  • opt for a secured loan if you own a property.
  • take steps to improve your credit score before applying for a loan.
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Find the Most Suitable Car Finance Deal

Finding the most suitable deal for your new car does not have to be complicated. All it takes is a bit of time looking around and a basic understanding of how car finance works. By making the effort to look around the most suitable deal, you could end up saving a significant amount of money when you buy a new car.

Author Bio:

Neil Stelling has worked in car finance for over 7 years. In his spare time, he enjoys blogging where he gets to share his tips and insights on the car finance industry. Click here to compare car loan deals online.


Founder and chief editor of Blogger, Affiliate Marketer, Tech and SEO geek. Started this blog in 2011 to help others learn how to work from home, make money online or anything related to business and finances. You can contact me at

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